Sembcorp Industries Ltd (U96) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to Sembcorp Industries Half Year 2021 Results Presentation Webcast. I'm Lay San from Group Strategic Communications. The members of the panel for today's presentation are Group President and CEO, Wong Kim Yin; and Group CFO, Eugene Cheng. Without further delay, I will now hand over the time to Kim Yin to begin the results presentation. Kim Yin, please?

Thank you, Lay San. Thank you, Lay San, again. Good morning, and welcome to Sembcorp Industries first half 2021 results briefing. In the first half of 2021, despite continued challenges due to the COVID-19 pandemic, Sembcorp continued to deliver essential products and services to our community. Our operations continue without disruption and delivered a resilient underlying performance. Now let me briefly outline the key financial figures. In first half 2021, the group delivered a turnover of SGD 3.3 billion, up 26% from first half 2020. EBITDA was SGD 640 million, up 20%. Adjusted EBITDA was SGD 744 million, up 14%. Net profit before exceptional items was SGD 252 million, up 69%, while net profit was SGD 46 million compared to a net loss of SGD 42 million in first half 2020. Earnings per share EPS was SGD 0.026 and earning per share before EI, before extraordinary items, was SGD 0.141. Group annualized ROE was 8.5%. The Board has announced an interim dividend of SGD 0.02 per ordinary share, which will be paid on August 24, 2021. Next, let me go through the key highlights for our different business segments. Focusing on the Renewables segment of our sustainable solutions portfolio, net profit for the segment was SGD 24 million in first half 2021 compared to SGD 33 million in first half 2020. This was mainly due to low wind resource in India. Performance from our wind assets in China was steady, and the energy storage portfolio in the U.K. performed very well. For the first half of the year, we secured an additional 105 megawatts of renewable projects in Singapore and Vietnam, and continue to grow our renewables portfolio. In the first half of 2021, 78 megawatts of solar projects commenced operations in Singapore and Vietnam as well. Most notably, we successfully commissioned the 60-megawatt peak Floating Solar Farm at Tengeh Reservoir in Singapore. This is one of the world's largest inland floating solar photovoltaic systems, and it is a showcase of our solar capabilities as a leading homegrown renewable energy player. Our gross installed renewables capacity now stands at 2.7 gigawatts compared to 2.6 gigawatts at the end of 2020. Next slide, please. The Integrated Urban Solutions segment has maintained steady profitability. Net profit before EI of the segment was SGD 63 million compared to SGD 64 million in 1 half 2020. Net profit was SGD 69 million compared to SGD 66 million the year before. Urban land sales was 68 hectares and net order book was 238 hectares in first half 2021. Lower commercial and residential land sales in China and lower land sales in Indonesia resulted in lower contribution from the urban business, but this was offset by a better performance from the waste business. The urban business continued to focus on building its land bank and platforms. In March, we received the investment license to develop a 481-hectare new industrial park in Quang Tri Province, Central Vietnam. The province has been earmarked as a future economic hub, along with the East-West Economic Corridor linking Vietnam, Laos, Thailand and Myanmar. In Singapore, in support of the government's Green Plan and our own decarbonization efforts, we launched Singapore's first solar-powered EV charging hub in July this year. We plan to open the hub for public use by other industrial vehicles by 2020. The Conventional Energy segment delivered a resilient underlying performance in first half 2021. Net profit before EI was SGD 185 million, up 46% compared to first half 2020. And this is driven mainly by higher energy demand and margins in Singapore and India. The flexible generation assets in the U.K. also performed well. As announced on August 2, an exceptional item of negative SGD 212 million was recognized for the impairment of the Chongqing Songzao coal-fired power plant in China. Apart from losing its cost advantage as a mine-mouth plant with the closure of the Chongqing mines, in the longer term we also expect the asset to face competitive pressure from green energy. This is very much aligned with our underlying thesis for our plan to green transformation strategy. Including this exceptional item, net profit for Conventional Energy was negative SGD 27 million. In Singapore, we were appointed by EMA, Energy Market Authority, as a new term liquefied natural gas importer in March. Our portfolio of energy solutions enables us to provide sustainable, competitive and reliable energy for consumers in Singapore. Natural gas, the cleanest form of fossil fuel, continues to be a dominant energy source, even as we continue to grow our renewable business. And in April, our utility service agreement with Eastman Chemical, a major customer on Jurong Island, that agreement ended and we will no longer have profit contribution from Eastman in the second half of the year. Now in May this year, we unveiled our strategic plan to transform our portfolio from brown to green, and we laid out our strategic targets for 2025. This is just to remind you that these are our targets. Next slide, please. So now this slide provides a snapshot of where we are as of first half 2021 against the strategic targets we set out for 2025. So in one half 2021, we secured an additional 105 megawatts of renewable project pipeline and continue to look to building our pipeline across Southeast Asia, China and India. Our installed renewable capacity grew to 2.7 gigawatts. While the proportion of profit contribution from sustainable solutions may vary from 1 reporting period to the next, we are firmly on our transformation journey. We are focused on achieving our 2025 targets, leveraging our capabilities and partnerships with stakeholders, building on exclusive platforms, so that we can be the leading pan-Asian provider of sustainable solutions, delivering long-term value and growth to our stakeholders. Let me hand the time over to Eugene, who will take you through the group financial review. Thank you.

Many thanks, Kim Yin, and good morning and thank you investment community for joining Sembcorp Industries' results briefing. I shall now take you through the group's financial performance for the 6 months ended June 30, 2021. Now as you remember, during our Investor Day on May 27 of this year, we unveiled a group strategic plan to transform our portfolio from brown to green with growth driven by the Renewables and Integrated Urban Solutions businesses. Now I will now go through our financials under the new segments, which largely will be Renewables and Integrated Urban Solutions, which collectively forms the sustainable solutions segment, which we have talked about as well as the Conventional Energy and Other Businesses and Corporate segments. Sembcorp Industries achieved a turnover of SGD 3.3 billion for the first half of 2021, SGD 673 million or 26% higher than the corresponding period of SGD 2.6 billion. The higher turnover was driven mainly by the Conventional Energy segment with improvement in power demand as well as margins and spreads. Group EBITDA, which excludes major noncash items, was SGD 640 million, or SGD 107 million or 20% higher than the corresponding period last year. Including share of results from associates and JVs of SGD 104 million, our adjusted EBITDA was SGD 744 million, being SGD 93 million or 14% improved over the first half of 2020. Adjusted EBITDA growth was in line with the growth in turnover, though offset by lower contribution from urban's land sales and losses from the coal business in Chongqing Songzao, China. Net profit before extraordinary items in the first half of 2021 increased by SGD 103 million or 69% to SGD 252 million, driven by higher contribution from our Conventional Energy segment, in line with turnover as well as EBITDA and adjusted EBITDA. The growth in adjusted EBITDA was enhanced further by the lower net finance costs, offset by higher corporate tax, mainly due to U.K.'s increase in corporate tax rate as announced earlier this year. Year-on-year, net finance cost was lower by SGD 36 million to loan repayments and refinancing of the SGD 1.5 billion marine bonds last year and a lower interest rate through existing revolving credit facilities. The extraordinary item was a negative SGD 206 million for first half of 2021 comprises an impairment of SGD 212 million of the Songzao's -- Chongqing Songzao power plant as announced on the 2nd of August 2021. And that is offset by a gain of SGD 6 million from the divestment of Sembcorp Jingmen Water Company, which was completed in May of this year. Net profit from continuing operations was SGD 46 million for the first half of 2021, SGD 88 million higher than the first half of 2020. Post the demerger with Sembcorp Marine in September 2020, financials of the Marine business have, of course, been presented as discontinued operations. Earnings per share before extraordinary items for first half of 2021 was SGD 0.141 and earnings per share was SGD 0.026. Annualized ROE for the group was 8.5% for the first half of 2021 and would have been a 14 -- closer to 14% before extraordinary items. The Renewables segment recorded a turnover of SGD 146 million compared to SGD 137 million in the first half of 2020. The increase was driven by higher contribution from solar segment and also from the energy storage and battery businesses in the U.K. Integrated Urban Solutions turnover of SGD 218 million was SGD 21 million or 11% higher than the corresponding period last year. This increase was mainly due to contribution from the businesses that's acquired by the waste management business last year. And that is offset by the absence of turnover from Water businesses divested in the second half of 2020, namely our Panama as well as Chilean water assets. The urban business comprise largely associates or joint ventures, and that will be accounted for under equity method, which we will touch on in the subsequent slide. The Conventional Energy segment recorded a turnover of SGD 2.8 billion, SGD 543 million or 25% higher than the corresponding period of last year. The better performance was due to higher energy demand and margins in Singapore and India as well as better operating performance of the U.K. flexible generation assets. Other Businesses reported a turnover of SGD 170 million in the first half of 2021, an increase of SGD 100 million, mainly attributable to Sembcorp Specialized Construction, but In the first half of 2020, SSC was impacted by the circuit breaker measures implemented in Singapore, resulting in labor constraints, and that has resumed in the first half of 2021 this year. Now this table shows the net profit contribution from the respective segments before and after exceptional items. The key highlights here are, we do have a lower renewables profit, and that's a result of global wind resource in India. As well as we do have some start-up costs for the solar business in Vietnam as we focus on ramping up our renewables growth in that pace. Integrated Urban Solutions profit was lower due to lower contribution from land sales in the urban business, and that is offset by higher contribution in the waste business. Improvement in Conventional Energy segment due to -- is due to the better performance in Singapore and India. And higher profit from Other Businesses -- it was due to higher contribution from Sembcorp Specialized Construction, which was impacted by COVID-19 in the first half of 2020. This chart reconciles the group's net profit to net profit before extraordinary items from the first half of 2020 to the first half of 2021. And it shows the variances for each business segment on a year-on-year basis. Now under sustainable solutions, which comprises the Renewables segment as well as the Integrated Urban Solutions segment, Renewables performance in first half '21 was impacted by low wind resource in India, as I previously discussed. And for the Integrated Urban Solutions, lower net profit is due to the timing of land sales of our urban business, where we had lower recognition of land sales in the first half of 2021 compared to the first half of 2020. First half of 2021 also includes contribution from waste business, which was acquired from Veolia as this -- as announced last year in June 2020. The Conventional Energy segment saw stronger performance from Singapore, India as well as the U.K. flexible generation assets as a result of higher demand as well as margins and spreads. Now this was partially offset by the Chongqing Songzao power plant turning into losses in the first half of 2021. In Singapore, just to highlight, there is also a net gain of SGD 13 million as a result of hedging -- dynamic hedging activities that will unwind in the P&L in the subsequent periods upon the delivery or sale of underlying hedge items. In India, prior period recoveries, net of expected credit loss provisions, amounted to SGD 27 million contribution in the first half 2021. In the Other Business segment, resumption of business activity for Sembcorp Specialized Construction, which was highlighted earlier on, was impacted by COVID-19 in first half '20 and business activities have resumed in this financial year. For the Corporate segment, the improvement was driven largely by lower interest costs arising from refinancing of our SGD 1.5 billion bond with revolving credit facilities and we have also taken cost control across our corporate spending in general. For the exceptional items, as mentioned earlier on, the first half '21 exceptional items are negative SGD 206 million, comprise of SGD 6 million gain from the divestment of Sembcorp Jingmen Water Company, and an impairment loss of SGD 212 million as a result of Chongqing Songzao power plant. This slide shows the capital expenditure of the group. Capital expenditure of SGD 176 million that was incurred in the first half of 2021 was mostly from new solar projects in Singapore and the U.K. battery facilities. In the first half 2021, equity investment of SGD 4 million in renewables related to investments in our joint venture in Vietnam, particularly Vietnam-Singapore Smart Energy Solutions segment. Moving on to the next slide. First half 2021 cash flow from operating activities was SGD 480 million or SGD 274 million higher as compared to the first half of 2020. This was mainly driven by improved operating performance and changes in working capital. Net cash flow used in investing activities was SGD 57 million, mainly for the purchase of property, plant and equipment, partially offset by proceeds from the divestment of Shenzhen Chiwan Sembawang Engineering Company and Sembcorp Jingmen Water Co. Excluding expansionary CapEx, group free cash flow for first half of 2021 was SGD 562 million. Now as at 30th of June 2021, the group's net debt was SGD 6.6 billion, which is marginally lower than SGD 6.7 billion as at 31st December 2020. Total borrowings remained steady as decrease in long-term borrowings due to loan repayment was offset by our very successful issuance of green bonds. Now as you know, in June 2021, we had successfully launched our inaugural SGD 400 million green bond offering, which was very competitively priced at 2.45% for a 10-year issuance. This is also the first certified green bond under the Climate Bond Standards by a Singapore-based energy company. And for the first half of 2021, gross debt-to-annualized EBITDA and annualized adjusted EBITDA was 6.0 and 5.2x, respectively. While interest cover over EBITDA and adjusted EBITDA was 3.0x and 3.5x, respectively. This was an improvement over the respective ratios as at December 31, 2020. Now this step -- this table highlights the maturity profile of the debt at the end of June 2021. The maturity profile has not changed substantially from the 31st December 2020, other than for rolling forward of the 6-month period ended 30th June 2021. Now as at June 30, 2021, out of SGD 7.7 billion, 12% of our debt is due within a year, 13% between 1 to 2 years and 31% of our debt is due after 5 years. Our debt has a weighted average maturity of 4.5 years and weighted average borrowing cost of 5.1%. Now if you will recall during the Investor Day in May, we have highlighted that SGD 2 billion of corporate maturity is coming due in years 2 and 3. As discussed previously, the bulk of it relates to maturities in our revolving credit facilities that have been drawn to fund the redemption of the SGD 1.5 billion marine bonds last year as well as other term MTN securities coming due. The intention, as I highlighted during Investor Day, will be for us to tap on our excess into the sustainability-linked instruments and traditional MTN bond markets to term out the maturities. At the end of June 2021, the group's cash and cash equivalents were SGD 1.2 billion and our unutilized committed facilities were SGD 1.2 billion, an increase of SGD 400 million since December 31, 2020, with SGD 400 million within term notes of green bonds as issued in 2021. In total, the group had SGD 2.4 billion of cash, cash equivalents and unutilized committed facilities at the end of June 2021. The group also had unutilized uncommitted facilities and unutilized trade-related facilities of SGD 3.7 billion and SGD 818 million, respectively. And as mentioned during the Investor Day, our target will be to free up and then get at least SGD 1.5 billion of committed RCF facilities to underpin our 5-year strategy execution. And as mentioned in the slide earlier on, we are in the process of coming out the maturities in our FCFs. Moving on to the business outlook for the rest of the year. Significant challenges remain for the economies around the world. Uncertainties continue to persist with regard to the COVID-19 pandemic with the potential resurgence of infections globally. Now underlying the performance of the group will also be negatively impacted by changes in the customer profile in the United Kingdom and Singapore, as well as loss of income from divested water assets in Panama and Chile. There are potential downside risks in the Conventional Energy segment across markets due to higher market volatility as well as higher fuel costs. In addition, there will be planned maintenance shutdowns in Singapore, Myanmar and India in the second half of 2021. The group is continuing to transform its portfolio to focus on sustainable solutions that support the global energy transition and sustainable development. In the first half of 2021, 78 megawatts of renewable energy capacity was installed and approximately 87 megawatts of renewable energy capacity is expected to come onstream by the end of 2021. I would just want to point out other developments worth noting. Performance of the second half of 2021 is expected to be impacted by planned maintenance shutdowns for the Singapore energy-from-waste plant, the Singapore Myingyan the Sembcorp Myingyan Power plant in Myanmar and for India's SEIL Project 1 and Project 2 power plants. And impact on earnings in Singapore and Vietnam as the natural -- there would be impact on earnings in Singapore and Vietnam as the natural gas contracts in Singapore approach expiry in 2028 as well as Phu My 3 power plant in Vietnam as it faces reducing tariffs as its power purchase agreement approaches expiry in 2024. Now with this, I end my presentation, and we are happy to take any questions that you may have from the audience. Thank you.

Thank you, Eugene. Thank you, Kim Yin. We will now proceed to the Q&A session. [Operator Instructions] If you are unable to ask your question on the webinar, you can e-mail your questions to our Investor Relations mailbox at investorrelations@sembcorp.com, and the management will address them during the session. Thank you.

Hello. I'm Terence from Phillip Securities Research. I was just wondering if management can provide more details on the impact of your earnings from the planned maintenance shutdowns for your Singapore plants and some of the India plants as well.

Eugene?

Okay. In terms of the impact in general, we do have a scheduled maintenance. It's just that for the second half of this year, some of our maintenance, particularly with the EfW plant in the first half has been delayed into the second half. So on a year-on-year basis, we do expect to have a slightly higher maintenance days compared to last part of this year. So in general, the assets that will be impacted as highlighted will be our EfW plant in Singapore, right, our Myingyan plant in Myanmar as well as across both India P1 and P2 plant. In terms of the specific quantum of the impact, we are not able to disclose that. But suffice to say there will be a greater impact in terms of planned maintenance shutdown compared to last time.

Sorry. This may be a stupid question, but can I find why the maintenance day seems to be a little bit higher than planned?

In relation to that, right, both P1 and P2, right? In terms of the maintenance, right, they're undergoing their annual kind of like a planned capacity overhaul. So that's a little longer than a usual maintenance. And also mentioned earlier, right, our EfW plant. This year, we are also doing the maintenance, because there was a defer of some of the maintenance hours in the first half into this -- of this year into the second half. So compared to last year, we will have a higher amount of maintenance.

Terence, if I may add. Some of this -- or actually all of our maintenance regimes, it depends on very strict engineering requirements, right? Let's say gas-fired plant at Myingyan, every X number of hours you will have a different type of maintenance overhaul. So Myingyan plant is a relatively new plant, but we are still at the point where we had to do a hot gas path inspection, right? So the hot gas path inspection is a major undertaking. We need to get 100 engineers or technical people that are not present in Myanmar into Myanmar to help us do this maintenance. So I liken it to -- when you drive a car, your first 10,000 hours, they ask you to go in there. They just look at the engine oil. You don't check the brakes. Then they send you out. Takes 2 hours. Now if your car is already 50,000 toll maintenance, we do at 50,000 is different. It's -- that we need it to -- needed the car there for 1 days, 2 days, something like that. So it just happened that we have a hot gas path inspection in Myanmar. Our EfW plant's maintenance was, as Eugene mentioned, somewhat deferred, right? And then our P1, P2 will be coming with knock against this particular milestone where we really need to take it down to examine some of the equipment. So compared to -- what is important is that I think while we cannot give you the exact number, compared to first half or rather second half 2020 we have all these maintenance that we didn't have last year, right? So what we are pointing towards is that because of that, these assets will not be in the position to contribute at least during the period that they are down, right? And these are not short. We're talking about 45 days here, 30 days there and so on. I hope that shed some color on it, although we don't provide order details.

Yes. Maybe if I can dodge in one more question. Can I just ask more color on the mill power situation in India in the first half of '21? And maybe also what's your outlook for the maybe rest of the year as well?

Eugene, do you want to take a stab at this?

Yes. I'll take the first stab. For the conventional our business for the first half of the year, we -- compared to last year where the first half was particularly hit by COVID, not that India is not still struggling with COVID right now, we did see about 2 to 3 months where demand for power was higher than last year, right? Generation a bit go up. And as a result, the dark spreads, the tariffs and also dark spreads, particularly on the uncontracted portion did go up. So as a result, we did see a stronger performance out of India for the conventional -- the thermal business, both from a demand as well as a spread perspective. Now coming into the second half, we're starting to see demand taper off a little bit, right? I think the second element to consider is also rising coal costs. As you would know, coal prices have been increasing fairly significantly. So the uncontracted portion of our India coal business is affected as well. So in general, right, we do see a tapering off of demand and as a result of rising fuel costs resulting in a compression of the dark spreads are expected in the second half.

And also the -- we have had -- while we -- for a couple of months, we see the demand improving and then spreads improving. And then India got hit with this very serious wave of COVID-19 a few months ago. So then suddenly the demand taper off as economic activities are affected. So then right now, what we're seeing is that wave has more or less tapered in India, right? So second half, you'd like to think that maybe you will recover, but we haven't seen enough of it. So -- and that wave has actually rippled out in Southeast Asia. We're beginning to see more cases in Myanmar especially, much closer to Indonesia and Malaysia as we have observed. So we think COVID will continue to be a significant impact to our business in the second half, even though it's -- you just can't tell, right. You don't know for a while, Singapore was okay, Vietnam was okay. Then now you look at even China, there are so many cases. So how is it going to impact? Depends on government actions, how much they shut down and the impact on economic activities. But we want to -- we just want to be very cautious. Now coming back then to India, other than Conventional Energy, so cost of the renewable energy -- and this is something that we -- season after season we watch very closely. We are very big in wind. I don't know whether we've caught that slide with the wind resource in India, the historical one. Lay San, do we have -- are we able to flash that? So if you see this, this is from 2000, right? The -- if you just look at wind speed. Of course, India is a very big place, right? So this is also a very grossed up average, but it gives you a sense of if you were running a wind business in India, of course, in specific locations, we have got very detailed charts. But for the purpose of this, you can see how historically this has changed in India. This is across 7 states. And last year, 2020, we actually had a little bit of a very stressful time. It was historical loan. And then this first half, we see it coming back a bit. But Vietnam is doing all right. We hope that we have hit the trough if we look at the trends. Those are Vietnam. We told that we have hit the trough and that it is on its way up, right? But we are also wanting -- this is not something that we can put any certainty behind. So -- but to put into perspective, I think since you asked about India specifically, and we -- especially in terms of renewables, one of our biggest contributors in portfolio in terms of capacity is actually in India wind portfolio. So this is something that we watch very carefully, very closely. And we are hoping that India wind, at least in terms of resource, has seen a trough and it's on its way up. But we will only find out when the wind blows up, other than the pun. But so I just wanted to put that -- give that perspective, share that with you, so that then every time we say that, "Hey, look, we are -- we're getting low wind resource and there are low wind resource in India," what does that mean? How does -- how do we think about it historically? How do we then even form a view moving forward. So this -- hopefully this provides some additional data. I hope that helps, Terence.

They helped a lot. Can I just ask one last question? The contribution -- land sales contribution from China was a little bit softer in the first half of '21. I was just wondering if this is a little bit more one-off? Or your CV says potential like continuation of -- for second half that's what you -- of the first half?

Yes. I think in relation to that, Terence, it is more of a timing issue, right, where in terms of the land sales timing, where it is a little slower compared to last year. I think going into the second half, we do expect from the -- the urban achieved right now to see the momentum of the land sales are resumed, right, across China, Vietnam as well. And it's just really in relation of timing. I don't think we are really seeing a structural softening at this point of time. But of course, 1 point to take note is that the COVID situation, depending on how the COVID situation develop across our key markets, we won't have an impact, right? Because in terms of land sales, many people actually would want to physically be able to look at the land and some of the properties as well. So if the COVID restrictions continue to worsen, for example, and people are finding it difficult to travel, then there could be a further slowdown in sales. But in general, we do not see these land sales softening as being a structural softening.

Yes. No, certainly, I agree. It is -- as long as you have the land, you're holding it eventually. And we had to time it properly so that we get the -- optimize the price outcome as well, right? So -- and it just -- in terms of -- I think what is important is that we have to see whether we continue to have the ability to acquire new land bank, right? And then from time to time, are we able then to monetize it, develop and monetize it? Holding it for a while, I think, it's strategic and it depends a lot on short-term government restrictions, especially in the COVID season. So to be very honest, I'm not very worried about that at all. In fact, sometimes you think if you hold it a bit longer, maybe even the update is much better at the right time.

Next in queue, we have Rahul Bhatia.

I have a few questions. Maybe I'll take it one by one. Firstly, I think if we compare the China coal assets and India coal assets, we impaired the China coal asset this time. But if we think about the reasons, right, like short-term reason, the coal price is high. Long-term reason, there is a transition to green energy. Then why -- how these 2 assets are different, that it led to an impairment in China, but not in India? And specifically for the P2, which is uncontracted mostly?

In the case of China, Rahul, what is happening is that, that plant was built next to the mine. So that then we can take advantage of the low cost of fuel, right? That provides the business and the plant with a very distinct advantage, right? So what happened is that with the closure of the mine, it has lost that distinct advantage. In fact, it is now in a disadvantage because it has to transport all that coal from other places in order to keep it running. Then at the same time, China is -- and that part of China is on its path to really push ahead on decarbonizing. So Chongqing, which is in the confluence in a region where they have access to hydropower and increasing hydropower through transmission lines coming from Chongqing. And there are also buildings in the surrounding areas, a lot of renewable stream and solar. We can tap on the neighboring provinces like Sichuan, even Gansu. We can bring all that renewable power into Chongqing. So when we look at impairment and carrying value, the long-term prospects of the business is obviously most important, right? Short term, things can come up and down, season after season. Of course, it does impact earnings and profitability. But the more importantly is long-term value. So in the case of Chongqing, with the loss of the mine and the Myanmar coal, it has lost its long-term competitive position, right? And with the new sources coming in from transmission line, hydros, renewables, we see that its long-term future is, in fact, more challenged than less, right? And compared to P2 now, P2 doesn't have this loss of advantage. The long term, you can still see that there is -- you can ascribe value to the long-term viability of the business. Now we share the concern actually. When we think about these core assets -- and you were there when we come up with our strategic plan 2025 brown to green, we watch this very carefully between the China coal plant and India coal plants. In the case of P1, P2, what -- we monitor it closely to study the carrying value versus the long-term viability and value. Now 1 of the key indicators to the P2 and for that matter, P1, P2 business, SEIL, we call it Sembcorp Energy India Limited, is whether or not we will be able to secure contracts. So if we're able to secure long-term contracts, that's again coming back is an indication that there is value beyond the immediate term. And once you have that, then there is some confidence and support to stand behind the carrying value on the books, right? So I'm -- just to summarize the answer to your question. Between China and India, really, it is -- we look at long-term value. China, it lost its long-term competitiveness when it lost the mine and the source of coal. In the case of India, no such condition, number one. Number two, long-term value, we continue to watch it very closely with the brown to green considerations in our mind. Well, as an indication of this long-term value is whether or not it would be able to secure longer-term contracts right? So those are the -- there are many other intricate considerations and people put together cash flows, run rates and so on. But in a nutshell, the difference between China and India core businesses -- when we look at whether or not impaired, they are not impaired. This is a key difference, right? Now again, I want to emphasize that for India coal business, we are watching it very closely, and we do share the -- So [indiscernible] I think we are -- we care about it as much as you do, if not more so, Rahul. So I hope I sort of shed some light on how those decisions are made and the thinking behind them. Eugene, you have anything to add to that?

Yes. Thanks, Kim Yin. I think, Rahul, in looking at -- I, obviously, will give a slightly more technical answer. In looking at impairment, the key question is that what are the triggers, right, that will lead us to believe that there is a long term -- there's a clear long-term diminution in the value of the asset. And as Kim Yin has highly -- has already pointed out, the key trigger there is the fact that the coal mine has lost its mine-mouth advantage, right? So as Kim Yin has pointed out, the plant was designed and also contracted on the basis that we would be able to get this very advantageous and cheap coal out of our partner in Chongqing. Now with that advantage gone, it will have to then, number one, import coal from the regional provinces, therefore, being exposed to market pricing. And the second thing, quite substantial coal logistics costs, such that the landed coal price foreseeable into the long term, right, coming into that plant is very, very much substantially higher. So as a result of that and also taking into account the mine -- the closure of the mines really came up on government policies. We also considered whether there would be a sustainable clear articulation of long-term sustainable support from the Chongqing government into the longer term. And I think at this point in time, there is sufficiency and the clarity of that is not clear. So the very fact that the very reason that -- the reason that -- the very reason for the plant being there it's a really good plant and also the fact that there doesn't seem to be any long-term support and mitigating factors for the reason, the structural change. Therein lies the trigger for the impairment. And for India, as Kim Yin has already pointed out, at this stage, that's not there, right? And -- but of course, we will be looking at the Indian assets and will foresee if those continue.

This is very clear. So maybe I just want to move on and discuss about divestment company of the SGD 5.5 billion 5-year investment plan. So why in your internal assumptions you are including this impaired China coal asset as 1 of the components for divestment? And secondly, if I think about -- if I assume that you would be thinking about divesting the India coal assets in future or you are trying to right now, what is the key bottleneck you'll see? Will it be about finding a buyer? Or would it be about getting the right price based on your book value?

If I hear you correctly, Rahul, and correct me if I'm wrong, then you are -- in the case of China, of course, having written it down, our main consideration will be to decarbonize, right? So we are committed in our 2025 plan that we need to reduce our current intensity, right, and also want to increase the contribution from our green sustainable solutions assets. So I think those are the key considerations that will be driving our thinking in the next few years to acquisition as well as divestment, right? So I think -- I just want to set that as the broad picture so that then you can see how our thinking will be guided by those priorities. So then when it comes to India, to your question, whether or not it is the buyer, whether or not it is the assets, again, we are thinking about -- the key criteria is to -- how are we going to increase the contribution from our green portfolio? How are we going to decarbonize the portfolio, bearing in mind that these assets are the ones that are giving us a very heavy carbon footprint? While at the same time, they are also contributing to the earnings portfolio. I won't be able to tell you exactly what we are doing because I think those are commercially sensitive. I hope you could understand who we're talking to, what all structure we're talking to. But suffice to say, again, guiding our thinking at the end of the day is that slide with the donuts as well as the bar charts that we -- I never stop flashing the slide in front of the Board, in front of management and also in front of you, as I did just now, to -- I think to align all the thinking that those are the guiding priorities in our mind to -- in terms of management portfolio moving forward. So the fact that with this particular trigger, Chongqing Songzao, we have to write down, which is not -- by itself not a good thing, right, you have a write-down of such a magnitude. But every car is a silver lining. So now having written it down, it does creates a lot more flexibility and perhaps optionality as to how we may decarbonize from that point.

Yes. And just to supplement Kim Yin's point, Rahul. I think you are talking about the SGD 5.5 billion, of which the expectation is about 50% is to be a mix of options, if you recall, right? It's going to be funded from operating cash flows coming from both on divestments as well as capital recycling. So I think in terms of funding that portion, right, we do have a very significant portfolio of assets that will be reaching maturity at different points in time. And also, we have a stable -- sustainable solution segment as well. So clearly, when we think about capital recycling, we will be cycling through those assets. We'll see what is suitable, a recycling, as for the factors that we have discussed in the Investor Day. So we are not hinging clearly on just divestments at all. But on that -- part of that, it is a holistic look in terms of allocating operating cash flows, divestment as well as capital recycling proceeds just to be clear.

Next in queue, we have Foo, Zhiwei.

I have two questions, one on Singapore and another on India. I think in Singapore, you talked about in your presentation about how you're seeing some stronger demand and better margins as driving the Singapore earnings. Could you just like give a little bit more color on the front? And as we go into second half, where I can see that the U.S. EP prices have spiked in July, how should we think about the profitability about your Singapore energy business? Then on India, I think, without sounding like an environmentalist, your wind speeds have been affecting your SGI earnings for about 2 consecutive years. Now let's say the wind speeds don't improve from here, how would this impact your renewable strategy in India?

Yes. I'm going to touch on the stronger demand and better margins in the first half that impacted Singapore. I think in the first half, there are a couple of things that happened, right? We see a sight better than last year in terms of electricity generation, right? And also in terms of spark spreads, we did achieve slightly better-than-expected spark spreads, partly because of the advantages in tariff. And also the fact that we are able to pass some of that investing debits and we cover that from our customers. Now in terms of the gas, the scheme sales situation, as you will know, HSFO prices were high, higher than last year, in the first half of this year. So the combination of that did help the overall spark spreads as well as gas margins in the first half of this year. Coming into the second half of this year, I think the key thing that we see is that in terms of gas, JKM, in that indices, were going up coming to the second half. And as a result of that, we do see that potentially impacting margins overall. Now Kim Yin, do you have anything to comment?

No, no. On that, I was going to comment on India. I think these -- the wind resource assessment, they are based on very technical, sophisticated studies, right? So Lay San, you can pop that slide also, if you want. I think we've shown it before, but the point really is that we don't think we will stop in India for stock. So when you have a big enough portfolio, you would hopefully have more portfolio effect, that's number one, as we grow our portfolio. Number 2 is over -- even across all of India, right, I'd show you the gross stuff, 7 state wind resource charges now. There's also the historical up and downs. So if your question -- and I read it very carefully, is that how does it impact the renewable strategy between speeds do not approve. I think we -- the long term or at least the engineering studies are suggesting that this is part of the ups and downs, right? And it should be tagged. And again, if we have the portfolio and we have deployed mitigation measures, we should be able to write ups and downs, right? So that's the whole point about it. So at this point, there is no desire to adjust our renewable strategy in India because we have experienced band winter or 2 bad winters. Now the next slide that -- Lay San, can we have the next slide? So those -- that's the existing portfolio. Moving forward, in our new assets that we either built or we acquire, we have to look at how -- the slide just now in this slide is trying to explain that there are many things that you get into in terms of assessing moving forward what type of wind we can expect. So we hope we are sharpening our pencils and doing better on the one hand. On the other hand, we hope that based on all the studies that all the experts are able to show us shows that there's going to be the ups and downs. And last year was historically low. Now I'm not expert and I'm not able to obviously say or -- it's going to stay there. It's climate change, right? And so that's why we're not coming out to say this is all due to climate change. It's still climate change, all the studies go haywire. So we know that it's climate change, but there's the -- what -- the best available assessments that we have between us, the entire industry, is that it is cyclical. And that if you -- especially if you have a big enough portfolio, you'll be able to hit the portfolio effect going into it. Now on our part, we have to sharpen our pencils in terms of doing better in forecasting, doing better in terms of capturing and then doing better in terms of mitigating some of these effects, right? I think in our Investor Day -- and you were there. So we also spend a bit of time talking about, you know what we will do to make sure that when the wind is blowing we are available, right? It's not being there, not being available because of maintenance or other reasons and not being able to capture it. So again, relative to some of the other players that we observe, relative to even ourselves, between self operation and outsourced operation, putting in this concept and driving people through this concept of energy-based availability has really helped us capture more wind than others -- than otherwise that we were not looking at it. So the point really is very long-winded. We went through all that is that at the end of the day to first answer to your question, no, it doesn't change our wind strategy just because we have too low winters. And you can see that first half of the year is better than last year. We don't know -- we're not willing to -- I'm not willing to sit here and just tell you that second half is going to be better than last year second half is, but we'll see. But again, the wind studies that is available to us, and we're deploying the best that is available and also all the other mitigation measures that we have and also the capabilities and modules that we're accumulating over time is helping us do better than the next guy. So I think this is -- it's -- to some extent, it's relative. We're watching the Olympics now, right? It's always relative. You beat the next guy, you're good. So are we able to do better, however, slightly than our competitors in this game, then I think we'll be fine. And India will always have a wind industry. India, we have to tap the wind resource as it goes on through its renewable green journey, right? So there is no doubt that wind industry will continue to be high growth as well as a very important source of energy for India. And because of that, we are really in India. We already have a big mass and a good position. We continue to want to play in that market. And like I say, it's like the Olympics. You have to run a bit faster, run a bit smarter, outlast, outsmart, outplay. As long as you have the ability to do a little bit better, if not a lot better, you will be fine.

Next in queue, we have Cheryl Lee.

I have two. The first is actually about the conventional energy. And if you could give some color of the SGD 58 million improvement, the year-on-year breakdown, in terms of quantum, just to get a sense, was it driven to a bigger degree to changes in India or Singapore, for example? And I guess the reason -- the rationale for this question is just trying to get a sense of perhaps what is sustainable or like some understanding of how much of this strength could be a bit more volatile versus from half year to half year.

Yes. I would say, Cheryl, we aren't able to give you the outright breakdown between the 2 segments. What I can comment is that for India, okay, a lot of the improvement that we see in the first half, as mentioned earlier, okay, came about as a result of there are some months in which we saw higher than previous half in terms of demand and also a result of dark spread. Going forward into the second half, as mentioned also earlier, right, there would be an increase in the coal cost and also tapering of that demand, although the demand really it depends, right, on how the COVID situation ends up. So that would be the element in relation to India, right? Now for Singapore side of things, the improvement came both from the energy as well as the gas business. Although on the Singapore side, there was the SGD 13 million gain that is recorded in the books of the Conventional Energy side of things. That is in relation to hedging -- dynamic hedge gains that, for this period, they were not hedged. Therefore going forward, it will be. But generally, for Singapore, the underlying improvement that we see in the first half, right, largely it's, as mentioned earlier on also, improvement in energy demand. But we did see better spark spreads, right? We were able to recover more vesting average charges to our end customers. And on the gas side of things, in the first half also, right, we benefited from higher HSFO prices. Now there's another element to consider for Singapore in the first half. Now if you recall, last year, we did say that one of our key customers, which is Eastman, was expected to exit by the end of 2020, right, without any contribution. But actually, Eastman did stay until the end of the first quarter, right? So that helped in performance for the first half when, of course, those contributions from the Eastman earnings are not expected to be in the second half. So I would characterize the outperformance that way. But we would not be able to share with you the breakdown of [indiscernible] across the two countries.

So Cheryl, if I may, I'll just add a little bit more color to that. I think the prospect statement actually was category crafted, and it says a lot, right? On the one hand, there are the onetime things that are not going to repeat itself by Eastman. On the other hand, we have had continued this slowdown that one can expect coming from COVID and so on. So the -- we would want to be very cautious to think through whether or not the second half of the year will perform like the first half. I would caution against that, right? On top of that, we have the shutdowns that we mentioned. So the last thing I want you to do is to take our first half earnings and then just extrapolate in the second half, it's not going to happen, okay? So I think it is, on a serious note to be very circumspect over the second half because the -- and seasonally, we usually have better first half than second half also, right? In the case of U.K., for instance, there's the winter, right? So the winter spikes resets our fast response and battery portfolios very well. Then as we enter the summer months, the modest decent for the second half of the year, we shouldn't expect the same performance from U.K., right? Then India and Singapore, it's very much minus all the onetime things and the shutdowns that one can anticipate, which is also how each economy can recover from COVID, what each government does. And none of this, we have any certainty of visibility. It just develops week by week. We can say day by day, but week by week new measures are being put forth, so it varies. Again, second half of the year, I wouldn't be -- compared to the first half and compared to the last year, I wouldn't be very -- won't be counting on it doing extra.

Okay. That's actually very helpful. And my actually second question is about ChongQing SongZao. So could you just clarify, you have the 49% stake. Could I just clarify issues such as management control, and like how much that you have, given that you have the smallest stake? And so things like your intentions to decarbonize or maybe change the structure of the plan, or who's in the driver's seat? And if you want to change sort of like the configurations and things like that, even the license, like to what extent are you able to do this easily or not so easily?

So the answer to your question -- the short answer is that the partner actually has more stake, right? In fact, they are also the owners of the coal mine. They're a state-owned company. We go in there, our role is clearly to bring in some technical capabilities, to bring in the commercial discipline, financial discipline. That is where we contribute. So in terms of, let's say, wanting to reconfigure, wanting to work with the government to recast the role of this plant, the partner will have to be in the lead and in the driver's seat, right? So we could give suggestions, but we are not -- and of course, we can block it, right? It's 49% as in any other 49% arrangement, but clearly in that situation in that business is the local partner.

Next in queue is Siew Khee.

I'll just go one by one, if it's possible. I do have quite a few questions. I'll try to keep it to this big picture question, okay? But there are still some details I needed to check with you. In the slides, you actually mentioned that there's credit loss of $27 million in India. I remember, there were also such recovery last year. Is this something that we can actually expect to recur? Is it...

It's not credit loss, right? We are talking about a late payment surcharges that is recovered from the...

It's a recovery allowance? Yes, recovery allowance for expected credit loss.

Yes. So I think in India, in terms of the earnings, apart from the higher demand, there were also two key elements -- three key elements, I would say, that came up in the first half. One, we did have a positive capacity came on throughout in relation to the last financial year up to 31st March of 2021. That is for the actual financial year on demand in India, okay? So that one -- that element, I'm not able to give you the breakdown, but I'm just giving you highlights of some of the elements. That element, it depends from year to year on how the capacity payment actually are throughout, okay? Now the second element, which is about -- is part of what has coming out of India, right, is the late payment surcharges that is a laid upon the discount. So that, from a quarter-to-quarter basis, the discount actually reconciles the accounts receivables with us and the late payment surcharges than agreed, accordingly. So that will take place from a quarter-to-quarter basis. So going forward, these conversations will continue to happen. Now the third element is slightly offset as a result of the ECL charges. That will depend on the ECL assessment at the end of each financial period. So it will be hard to say whether the ECL charges will recur or not, but that will be assessed at any one point in time. So I think in the very long answer to your question, Siew Khee, the key elements that are; part of it will recur from time to time, that's particularly in relation to the late payment surcharges.

So I suppose, the ECL assessment will usually take place every quarter. I mean, you ought to actually, of course, by year-end of the books, you would actually assess it. But I take it that you will also do it at a group level when you have to report, right, these 3 elements? Okay. Okay. That's very helpful. So just on India again, I know that there's a difference between Chongqing and India in terms of the outlook. So just wanted to check because CEO mentioned that the reason why there's no impairment in India is because of the long-term outlook is still there, and you are still hoping for long-term PPA. Are we actually close to hearing any long-term PPA coming up? Are there still long-term PPA being given out right now? What I'm trying to say is because in case something happens and then you -- end of the year, you review the book and you decide to take a charge like Chongqing.

I wouldn't preclude that possibility, right? But as I said, there is a very strict methodology and process, right? Right now, there are -- then to the other part of the question, whether or not there are long-term PPAs being discussed, yes, they are, right? And they are of -- it's not just one, there are several. On top of that, there are also new possibilities coming up. For instance, the Indian government have put out this new bid quite around the [indiscernible], right, which is out there that we potentially can anticipate. I'm not saying that we will, I'm not saying that we'll win. But to the point we don't, they have more long-term PPAs, so this can go around the cockpit in which they're asking for proposals for renewable plus thermal as a combination around the crop because renewables are intermittent, right? And that only certain ours, especially solar will be available. So they want to have that supplemented by thermal power. And together, one has to guarantee whoever is the winner of that bid, there can be certain availability of energy, be it coming from green and from a certain profile -- certain proportion must come from this and that. So that bid will be coming up. We understand in this half of the year, but we don't know it's a good one. Again, we're not saying we'll participate. We're not saying we'll win. All we're saying is that, to answer your question, whether or not there are new contracts that are out there, yes, there are, right? And this is one example. Even if it's not a pure thermal. And in the meantime, we're talking to several parties. So the idea really is whether or not, going back to the point that I think Rahul was also asking, what's the difference? When do you take one, when you don't take one? So I cannot preclude the possibility of us taking another one on India, right? But one thing to share with you, how we think about renewable energy is stable. At the end of the day, does that say it's a long-term from the -- when we look at a [indiscernible] there, it has to be based on a long-term prospect of it, not just one year or two years. And then the long-term prospect really depends on whether or not this business has a value, right? So if the value of the business is there's no prospect of it driving the value that we're carrying on our books, than we have to figure by account principles and by commercial principles, one will have to take in that. So again, in case of Sembcorp, it's very clear. The loss is [indiscernible]. The loss is advantage. The loss is the rightful place in the system. It's longer -- it's no longer the competitive. So because of that, we had to take it down. In the case of India, today, this season when we look at it, it continues to have that ability to drive value and margin, right? It's competitiveness compared to where it was one year, two years, three years ago has not materially deteriorated, right? But what we want to see is whether or not there is support, right? If this thing has value going forward, it has a rightful place in the system, it continues to serve an important role serving competitively priced power, notwithstanding is its coal, somebody is willing to sign in a contract. And that is an indication that will provide the support to simply an assumption in the cash flow, right? So those are the things that we're looking for and as we think about it. So season another season, we look at this very closely, right? And then, when we think about this, we also think about the fact that it is coal, right? And then in the longer term, is it going to -- it's competitiveness, it's going to erode as the value -- or rather the costs of current increases, right? As the cost of coming, over time, it will -- we cannot expect that to increase, especially in our strategy to go around the green. As that [indiscernible] burden, you have to correct that waste on to the coal-fired power station in the long run. Can it continue to survive, right? So that is a very [indiscernible] way of thinking about it. So I hope, I've given you some color and again, the -- how we think about this thing. So -- but I don't think we -- I would sit here and say, don't worry, there's not going to be another one, right? But the way we think about it is as such. There's a good reason there's a trigger to reject the point in the case of Songzao. It has loss issue. This one, at least at this point, continues to look as it's rightful role. Now, we are looking for the validation and we're looking for the support uncertainty.